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How long does it take to withdraw money from your pension?

After years of saving money away for your retirement, you’re finally ready to withdraw your pension and relax. You may be asking, though, how long does it take to withdraw money from your pension?

This article will tell you everything you need to know, including how you withdraw your pension, when you can withdraw it, some things you should consider before you do so, and more.

Also consider: Best Pension Providers for Private Pensions

Key takeaways

  • It will typically take around seven working days to withdraw from your pension pot, though it could take four to five weeks to withdraw a lump sum.
  • You are expected to wait until the age of 55 (rising to 57 in 2028) before you can withdraw your pension. You can do this younger, although you will face fees and taxes.
  • You can withdraw 25% of your pension as a lump sum tax-free once you turn 55. Any more than this will typically be subject to Income Tax at your marginal rate.
How long does it take to withdraw money from your pension

How long will it take to make a pension withdrawal?

When you finally decide to withdraw your pension, you‘ll need to make the request with your pension provider. Some providers may have different times to deposit the money in your bank account, though you can typically expect to wait around seven working days for your request to be processed.

If you want to set up regular income payments, however, you may be facing a slightly longer period of time before your request can be set up – this is typically around 18 working days.

How long does it take to withdraw a 25% lump sum from a pension?

For your 25% tax-free lump sum, this usually takes a bit longer than standard withdrawals, especially if it’s the first time you’re accessing your pot.

Depending on your pension provider, it should take around four to five weeks from the date you requested to withdraw your lump sum.

You should keep in mind that you may face charges from your provider for making lump sum withdrawals, so you should check with your provider before doing so.

When can you withdraw money from your pension?

Typically, you must wait until the age of 55 before you are able to access your pension. This is set to rise to 57 in 2028.

The State Pension Age, however, sits at 66 in the 2022/23 tax year. So, unless you have a private pension, you may need to wait until this age before you can start taking a retirement income.

If you have a defined benefit pension (sometimes called a final salary pension), you should check with your provider when you’ll be able to start taking an income and withdrawing from your scheme.

You can usually withdraw from a defined benefit pension at the age of 60 or 65, although this will depend on your provider.

Can you withdraw your pension before the age of 55?

While technically legal, withdrawing your pension before the age of 55 will likely see you face exorbitant fees and taxes for doing so.

If HMRC adjudges your early release to be “unauthorised”, you could face a tax charge on your withdrawal of 55%.

Additionally, most firms who offer early pension release could charge extremely high fees, potentially even as much as 30%.

Many third-party firms that offer early pension release are either scammers or are not regulated by the Financial Conduct Authority. Exercise extreme caution when dealing with firms that tell you they can access your pension early.

That said, there are some circumstances when you may be able to withdraw your pension pot before 55 without facing fees. These may include:

  • You’re in ill health or poor health, or you have a serious medical condition meaning you can’t work.
  • You have a terminal illness and have been given less than a year to live, in which case you may be able to withdraw your entire pension as a tax-free lump sum.
  • Your pension plan has a lower retirement age, for example if you are a professional sportsperson.

You should keep in mind that while a private pension or a personal pension has a minimum withdrawal age of 55 (rising to 57 in 2028), the State Pension Age is currently 66 in the 2022/23 tax year.

Can I take my 25% lump sum and leave the rest invested?

You can, of course, decide to withdraw 25% of your pension pots as tax-free cash and leave the rest of it invested. This may actually be the most sensible course of action when it comes to withdrawing from your pension since the money you leave invested has potential for further growth in what is essentially a tax-efficient investing account.

You may even want to withdraw 25% as a lump sum, leave the rest invested so it continues to grow, and then set up monthly payments with your provider. This way, you will be avoiding excess tax while still making the most of potential investment returns.

Can I cancel my pension and get the money now?

Your ability to “cancel” your pension will be determined by your age and, if it’s a workplace scheme, when you were enrolled in it.

If you are 55 and want to “cancel” your pension, you’re free to withdraw all the money now. You’ll be able to withdraw 25% tax-free, then anything more than that will usually face Income Tax. Carry on reading to find out how this tax will be calculated.

If you are younger than 55 and wish to cancel your pension to get your hands on all your money, however, there is a good chance you will face high fees and taxes.

For example, if you were to withdraw your pension early, you could face a tax of up to 55%, and there may be early withdrawal fees from your provider on top of this tax. This can make it expensive and inefficient to cash out your pension early.

This may not be the case with a workplace pension as, if you opt out within a month of making your first contribution, you will likely be treated as though you never had a plan with them.

That means you’ll be able to simply withdraw your money and take it as cash.

How do you withdraw money from your pension?

When you have decided it’s finally time to withdraw money from your pension pot, you should get in touch with your provider. It may be wiser to give them a call, as they can talk you through your options.

There are several different options available to you when it comes to withdrawing your pension, including:

  • Annuities – these involve you withdrawing some or all of your pension, then swapping some, if not all, as a regular taxed income that is guaranteed for life.
  • Drawdown – this is when you take 25% as a tax-free lump sum, and then keep the rest of your savings invested. You can, of course, take a flexible income at the same time.
  • Lump sums  you could take lump sums from your pension. You could decide to make lots of smaller lump sum withdrawals, or take lump sum withdrawals where 25% of each withdrawal will usually be paid tax-free and the rest taxed as income. You can even withdraw your entire pension as a lump sum if you want, though only 25% will be tax-free.

Once you have decided on the plan for your pension savings, you will typically be sent a letter from your provider that needs to be signed. After this has been done, you should expect to wait the previously mentioned periods of time for your requests to be met.

If you’re unsure whether this is the right choice for you, make sure you speak to an independent financial adviser.

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How much can you withdraw from your pension?

As mentioned, once you turn age 55 (57 in 2028), you can withdraw as much from your pension pot as you wish. You can take 25% of your pension as a lump sum tax-free, but this doesn’t mean you can only withdraw 25% at a time.

You can withdraw your entire pension at once if you please, though you should keep in mind that only 25% of this withdrawal will be tax-free.

Should you withdraw your entire pension at once?

Withdrawing your entire pension at once will likely result in you facing a hefty tax bill since only 25% of your withdrawal is tax-free. This means that withdrawing the entire thing could be seen as fairly tax-inefficient.

You should ideally look at your own personal circumstances before you make a withdrawal. If you aren’t desperate for the money and don’t need to be paying large tax bills, then you should only withdraw what you really need from your pension

Will you be taxed on your pension withdrawal?

Once you have gone over your 25% tax-free lump sum withdrawal, you will typically be subject to Income Tax on pension withdrawals that exceed your Personal Allowance in a single tax year. In the 2022/23 tax year, the Personal Allowance stands at £12,570.

Once this Personal Allowance has been reached, you will typically pay tax on withdrawals depending on your Income Tax band.

It’s important to note that money taken from your pension over the 25% lump sum is added to any other income you have in that tax year.

So, taking a significant amount from your pension could push you into a higher tax bracket, meaning you may be taxed at 40% or 45% if the amount takes you into the higher- or additional-rate bands.

AdditionallyIf you are a high earner, your Personal Allowance may be reduced. Those earning £100,000 or more will face a reduced Personal Allowance of £1 for every £2 of income above the £100,000 threshold.

You may also face a tax charge if your total pension benefits exceed the pension Lifetime Allowance (LTA). As of 2022/23, this allowance stands at £1,073,100.

Any benefits you hold that lie above this allowance may face a 25% Income Tax charge if you take it as a regular retirement income, or 55% if it is taken as a lump sum. These rates are on top of your marginal rate of Income Tax.

How long does it take to withdraw money from your pension FAQs

 

What happens to my pension after I die?

When you die, your beneficiaries can decide whether to withdraw your pension savings as a lump sum, or they can set up regular payments as a source of guaranteed income.

Make sure you fill out an “expression of wish” form with your pension provider to ensure your pension benefits go to your desired beneficiaries.

When is the best time to withdraw money from a pension?

Due to the high tax implications and exorbitant fees that come with withdrawing your pension savings before the age of 55 (57 from 2028), it can be sensible to wait until you reach this age.

Please note

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension pot withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.

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